Gov. Brown treats 2 pension systems differently: Daniel Borenstein

Kudos to Gov. Jerry Brown for demanding last week that CalPERS stop kicking pension debt further down the road. Too bad he hasn’t applied the same standard to the CalSTRS shortfall.

The state is home to the nation’s largest pension system, the California Public Employees’ Retirement System, and the second largest, the California State Teachers’ Retirement System.

Between them they have shortfalls of about $180 billion — debt we are now passing on to future generations because of past failures to properly fund the system. That’s more than $14,000 per California household. The longer we postpone paying it off, the greater the cost, as anyone with a credit card should understand.

That’s why the governor Wednesday sent a stinging letter to the CalPERS board protesting its plans for delaying repayment of newly added debt. “No one likes to pay more for pensions,” Brown wrote, “but ignoring their true costs for two more years will only burden the system and cost more in the long run.”

CalPERS’ actuary says the pension system has been undercharging the state and local government agencies because it failed to properly predict increasing life expectancies and earlier retirements.

That means the money CalPERS previously collected was insufficient. Fixing the actuarial assumptions creates new unfunded liabilities for pension benefits workers have already earned — debt that must now be paid off with increased contributions. It also means the system should be collecting larger payments in the future to cover the pension benefits associated with employees’ future labor.

For the state, its portion of CalPERS’ unfunded liability would increase $9 billion, from $45 billion to $54 billion. The actuarial changes would eventually add $1.2 billion, or 32 percent, to its current $3.8 billion annual pension bill.

These corrections, which the pension system board will consider Feb. 18, must be made to preserve the pension system’s financial integrity. But CalPERS’ chief actuary recommends phasing in the resulting rate increases over five years, starting with the 2016-17 fiscal year.

That’s why the governor protested. Delaying the debt repayment will cost the state $3.7 billion more over 20 years. Brown calls that “unacceptable,” and urges that CalPERS phase in the increases over three years, starting now.

Indeed, the sooner the better. But that hasn’t been the CalPERS culture. The pension system board, dominated by labor representatives and elected officials beholden to unions, has tried to keep contribution rates low, leaving more government funds available for salaries and other benefits.

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As the governor notes, it’s pay now or pay more later.

Unfortunately, Brown has not applied the same logic to the teachers’ pension system. Unlike CalPERS, CalSTRS cannot raise contribution rates; only the Legislature and governor can.

And for years they have ignored CalSTRS’ pleas to do so as the pension system’s unfunded liability balloons. Installment payments to retire the debt over the next 30 years would now require allocating an additional $4.2 billion a year for CalSTRS.

That money must come from the state, school districts and/or teachers. Realistically, the problem can’t be solved without the state. Brown has called for negotiations to figure a long-term solution.

But, while falsely claiming the state will have a budget surplus for the upcoming 2014-15 fiscal year, he proposes no funding to pay down the CalSTRS debt. Because of inaction, the teacher pension system’s debt mounts, at an estimated $22 million a day.

Remember, as Brown wrote last week about the CalPERS debt, delay “will only burden the system and cost more in the long run.” The same logic applies to CalSTRS.

Daniel Borenstein writes a column for the Bay Area News Group. dborenstein@bayareanewsgroup.com